Case Study: Silicon Valley Rental Cap Rate

South Bay
1

This home was recently bought for $1.555M:

https://www.redfin.com/CA/San-Jose/2445-Ottawa-Way-95130/home/802163

And the buyer immediately puts it up on the rental market for $3800 per month

https://sfbay.craigslist.org/sby/apa/d/gorgeous-3bed-2bath-house-in/6488602746.html

Cap rate:

(3800-((1555000*.015+750)/12)*12/1555000 = 1.38%

How many of you think this is a good strategy?

1 Like
2

Isn’t he buying it for the appreciation?

3

Yes, I think so…

4

I don’t think banking on appreciation is a great plan. Maybe there was a large down payment so the cash flow works. Negative cash flow with a hope of appreciation is a recipe for disaster when there’s a recession.

2 Likes
5

Maybe he’s like @sfdragonboy 1031 into it from some other rentals? And moving in 2 years later.

6

Escrow closed in 2 weeks so maybe yes it was an all cash purchase. I will confirm when public data becomes available.

1 Like
7

BTW a condo half the price in SF would have gotten higher rent than that.

8

1.5% tax and $750 insurance… nothing for maintenance or vacancy?

Someone is just parking money. Should’ve put that $1.5m in Bitcoin instead. No clogged toilets there.

2 Likes
9

Peter Pan was the buyer’s agent… :thinking:

10

So why are you only putting 100k there? Put your money where your mouth is.

Also, @manch is insane so of course he liked your comment… :rofl:

12

Correct. They just park their money.

Correct.

They paid 300k over list price and paid in 14 days. They did not do any comparable or they (offshore persons) trusted someone here Looks like full cash payment from Asia China/HK…etc(Li YUSHENG & SHU, WU ) etc. They just parked the money in USA as investment so that money grows or their money is not accounted in their own country (Black money transferred)…etc.

13

That is speculation only. I will confirm later whether you’re right. However, 1.555M is the right price for this house. They did not overpay.

14

If this can be rented out for $3800, it seems like I should raise my rent for a house close by.

15

Wait… aren’t you the one with a $50k net worth only? How could you afford to be a landlord in West San Jose??? :rofl:

16

Geez. Did you pass high school algebra? Time to redo your math on @john.

17

What??? Who do you think I am??? :rofl::rofl::rofl:

18

Are you getting a better cap rate than 1.38% due to lower property tax? Use the market value to calculate, not your purchase price.

19

Redfin selected Bucknall as the #1 neighborhood in USA this year. This buy might be motivated by Redfin’s hot list. His purchase purchase is 10k less than Bucknell median price so he got a tiny discount due to his strong cash position. But why bother with renting for such small rent? Should just lock it up to escape SJ’s rental regulations

  1. Bucknall, San Jose, CA

Median Sale Price (Dec. 2017): $1,565,000
Average Sale-to-List Price Ratio (Dec. 2017): 123.8%
Percent of Homes that Sold Above List Price (Dec. 2017): 100%

“Bucknall is hotter than ever; buyers should be prepared to act fast as the typical home goes off the market in just eight days,” said Redfin Silicon Valley agent Kalena Masching. “Bucknall has a ton of single-family homes, which sets it apart from many neighborhoods in the area that have more mixed-use or multi-family homes. Bucknall borders the Saratoga Westgate shopping plaza and has easy access to five grocery stores, multiple gyms and yoga studios, shopping, highly rated schools and a movie theater to help keep people entertained.”

20

I am not a real landlord. One of my close relatives lives there so I was only joking about raising rents.

21

This house is technically not Bucknall, but Westmont. Because the school is not Moreland but Campbell Union.